Examining the Impact of Home Purchase Restrictions on China's Housing Market

44 Pages Posted: 17 Dec 2019 Last revised: 21 Aug 2021

See all articles by Zhentong Lu

Zhentong Lu

Government of Canada - Bank of Canada

Sisi Zhang

Jinan University - Institute for Economic and Social Research

Jian Hong

Shanghai University of Finance and Economics

Date Written: March 8, 2021

Abstract

This paper studies the impact of home purchase restrictions on China's housing market. We estimate a structural model of household preference for housing, real estate developers’ pricing decisions, and equilibrium market outcome in five large cities. By comparing the estimation results from pre- and post-policy intervention, we find that, after home purchase restrictions are implemented, overall housing demand in most cities becomes weaker and less price elastic; meanwhile, real estate developers face higher holding costs and thus are willing to lower prices and sell more quickly. Counterfactual analyses show that in some cities alternative policy designs that cause less structural change of demand could achieve larger consumer welfare and social welfare than the implemented policy.

Keywords: Housing Market; Cooling Measures; Structural Model

JEL Classification: R31; R38; O18

Suggested Citation

Lu, Zhentong and Zhang, Sisi and Hong, Jian, Examining the Impact of Home Purchase Restrictions on China's Housing Market (March 8, 2021). China Economic Review, Vol. 67, 2021, Available at SSRN: https://ssrn.com/abstract=3503541 or http://dx.doi.org/10.2139/ssrn.3503541

Zhentong Lu (Contact Author)

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Sisi Zhang

Jinan University - Institute for Economic and Social Research ( email )

601 West Whampoa Road
Tianhe District
Guangzhou, 510632
China

Jian Hong

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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